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  • AUD/USD has slipped back from earlier highs above the 0.7550 mark but, despite the risk-off market tone, still trades flat on the day.
  • The Aussie has been supported by a surge in Iron ore prices to record highs in China during the Asia session.

AUD/USD has slipped back beneath the 0.7550 mark in recent trade, but is still only a stone’s throw away from Asia session highs above 0.7570. At present, the pair trades flat vs USD on the day in the 0.7530s, with the greenback having gained some ground since the European session started amid a broad deterioration of risk appetite amid concerns over the lack of progress in Brexit and US fiscal stimulus negotiations.

Key Australian export prices surge

AUD has been supported by a surge in commodity prices in recent days and Friday has been no different. In particular, much attention has been paid to a rally in Iron ore prices over the last few days. Note, Iron ore is one of Australia’s key exports, raking in nearly AUD 50B annually from the stuff, with much of it being sent to fuel construction in China.

Iron ore futures on China’s Dalian Commodity Exchange surged by almost 10% during Friday’s Asia session, crossing above the CNY 1,000 per ton mark for the first time in history. Driving the move, according to market commentators, is a combination of 1) seasonal demand (Steelmakers usually stock up on raw materials ahead of the New Year and Chinese New Year, said Cai Yongzheng, chief futures analyst of Nanjing Iron and Steel Co. Ltd), 2) supply disruptions (Vale, the world’s second-largest iron ore producer recently curbed its 2020 production guidance and reducing its guidance for next year) and 3) potential short-term supply disruptions caused by storms hitting Western Australia.

Australian vaccine problems?

AUD has largely shrugged off negative news out of Australia regarding a vaccine being produced by Australian firm CSL and the University of Queensland; the duo’s vaccine trail had to be abandoned after trial participants returned false HIV positive results. While the positive results were false, meaning trial participants’ health was not put at risk, the Australian government has pivoted towards alternative vaccine supplies, announcing an agreement with Novavax and upping its existing order from AstraZeneca.

AUD/USD eyes a long-term grind back towards 0.8000 and above

Over the coming month’s year, if the dollar continues to slide and commodity prices continue to rally amid a strong Chinese economy, AUD might well be able to grind all the back towards the next key area of resistance which lies just above 0.8100 (the September 2017 and January 2018 highs). To the downside, 0.7400 should offer strong support (December 2018 and August 2020 highs).